American consumers binged again in April, though not much more than they had in March. Previously delivered government stipends continue to inflate retail activity if not much else. According to the Census Bureau, retail sales rose “just” 0.7% last month when compared to the month before it. Given that March had been up (revised) nearly 11% versus February, any even small positive number for the latest monthly figure indicates how the splurge remains in effect.
It does, however, bring up the possibility at this stage if absent Uncle Sam’s generosity, then what? Once the sugar rush wears off and the consumer comes back down, what’s underneath all this? If it’s full recovery, so be it, the economy off to the races with a potential path to possible inflation.
Anything less than that, like what happened late last year when the checks and artificial bonuses ran dry, we’re right back in the (disinflationary) mess.
Because of that implication, despite the uncharted territory for retail sales and the huge numbers that would create on its own, let alone how they’ve been further boosted by base effects, these gigantic positives can’t really register. After rising (revised) 31.7% year-over-year (unadjusted) in March, the new April 2021 estimate for total retail sales was an almost comical 51.4% greater than the same for April 2020.
Greater than fifty percent. Fifty.
With that there is no purpose in plotting it on any chart; it either surges way off the top of it, or when you adjust the scale all the rest of the data is shrunk down to relative nothingness.
Perhaps, then, it serves one function just in talking about it; to illustrate just how distorted the US economy might have become for what are actually arbitrary reasons. Like politics and vacuums, economic systems have their own set of problems faced with even hugely positive warping. It’s basically an advertisement for “this can’t last.”
The argument that it is better than the alternative remains valid. That’s not really the point; is this “stimulus?” In the short run sense, yes, but that’s of very limited value. There is a place in the world for “jobs saved”, it’s just that place isn’t atop the pedestal of achievement (somewhere closer to its bottom).
Stimulus as is commonly understood relates to expectations for more lasting effects. And there are downsides to such huge distortions, if they introduce their own sets of frictions previously unknown. In the mad scramble to make bank today while you can, do you alter your operation in a way that might make tomorrow’s undistorted regular economy suddenly more costly and inefficient?
The point here is not to try to convert a huge gain in retail sales and make it seem something awful. Rather, it’s to recognize that what’s obviously going on right now isn’t organic or natural recovery which then brings up any number of reasons to look closer at what’s likely beyond these gigantic rampages once they inevitably subside.
And that puts us right back in touch with producers. As we’ve been pointing out all along, through Helicopters 1 and 2 now 3, given these spending estimates, even being wowed by them, you have to ask yourself why aren’t producers similarly and convincingly awed?
The data release schedule is nothing other than pure accident, and before the past six or seven months it hadn’t mattered as much. Traditionally retail sales and IP come out on the same day, but nowadays there appears almost a purpose behind having spending data prepared by the Census Bureau released at practically the same time the Federal Reserve publishes its own for Industrial Production.
Night and day.
Whereas retail sales are obscenely high, American industry just isn’t buying no matter how much consumers do (in goods only; thus, a clue). The Fed’s numbers agree with media interpretations that really cold weather in February had temporarily spoiled the rebound. Revised figures say that IP dropped quite a bit more than first thought (down 3.5% from January, a steep drop).
But it came back only 2.4% in March and then added just 0.7% on top of that in April. “Somehow”, during the same months when US retail sales went nuclear, overall production last month was still half a percent less than it had been in January at a level nearly 3% below February 2020 before this recession had begun. Weather doesn’t apply.
And those don’t count how industrial output in April 2021 was about 4% below (the scale of a modest recession) what it had been in December of 2018. The current number is less than November 2014. It’s just not adding up.
Those proportions apply equally to manufacturing; it’s not as if utility output, for example, is being suppressed by unusual weather in either unexpectedly cold or unseasonably hot months and that accounts for what’s clearly missing. The only way around the most straightforward interpretation is to presume supply shortages so extreme and widespread they’ve put production levels 180 degrees opposite from goods binging across the entire economy (or, some might wonder about Americans favoring and purchasing more exclusively imported goods during this fiesta, at least until seeing production levels outside the US).
There is little doubt that semiconductor shortages, for example, are indeed hampering especially automobile production. According to the Fed’s figures, motor vehicle assemblies were an atrocious 9.03 million (SAAR) during April, though that was 8,865% more than the year before. It was also just barely more than the February freeze which had coughed out 8.88 million.
Just how bad was that? Barely 9 million is 2011 territory. How much do semiconductors account here? Half a million? A whole million? Even at 10 or 10.5 million, that would still have been a bad month for the auto industry. And in a situation where auto sales were stupidly insane, in March and April anyway when BEA and Census estimates finally got together, how can this possibly be?
Supply shortages are part of the story, likely a small one gaining unearned attention as the inflation story desperately seeks to dismiss these glaring contradictions. And they don’t get any more blatant than the one staring back at us from the oil patch.
Crude prices have led the commodity charge, or had, a leap in market value which otherwise should have convinced oil producers to turn back on most if not all of the huge chunk of oil pumping which had been long ago turned off. WTI is in the mid-$60s, and if you believe inflation and Warren Buffett’s Big Red Hot economy, it’s only going to be much higher.
Yet, the data is consistent from the US EIA as well as the Federal Reserve’s Industrial Production. Crude oil “mining” remains down at the lows (revised a little lower) for the 12th consecutive month. That makes an entire year when about 15% – fifteen – of the whole of America’s vast oil production capacity remained untapped and shut down. An entire year.
That particular fifteen is far more long run meaningful, I think, than the retail sales fifty.
Producers – like bond investors – must be looking at all this and coming to the same conclusion. Transitory. Since we already went through this once, last year, and what had really awaited the economy at the end of all 2020’s “stimulus” was instead a summer slowdown lasting half a year until the next helicopter, there’s any number of reasons why there is so much real skepticism evident in everything going on outside of online shopping for goods.
Red hot this is not.